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JetBlue, Spirit Merger Trial Looms
Though weeks-delayed, merger trial inches closer
The potential merger between JetBlue and Spirit Airlines has already been a long process. JetBlue took months to convince Spirit shareholders to choose their merger over a deal Spirit had already struck with fellow ultra-low-cost carrier, Frontier. After doing so, the Department of Justice announced they would sue to block the potential merger on anti-trust grounds.
Now, a trial will begin in U.S. District Court in Boston to examine whether the $6.8 billion can go through. It is the first time that the Department of Justice is taking a merger to court. The Department challenged American’s merger with US Airways. However, that case was settled out of court before a trial even began.
“This is a different DOJ,” said William J. McGee, a consumer advocate and senior fellow for aviation and travel at the American Economic Liberties Project. “In my lifetime, in this industry, we have never seen the DOJ be so aggressive on the airline front.”
The Department of Justice has lately been more apt to take antitrust cases to court, though their results have lately been mixed. However, the Department of Justice did win an anti-trust case against JetBlue earlier this year, when a judge barred future collaboration between JetBlue and full-service carrier American Airlines in the Northeast United States. The judge found the two were too powerful when working together. Thus, JetBlue declined to appeal the ruling to focus more on its proposed merger with Spirit.
This particular case will be quite notable, as if the merger goes through, one of the United States’ two major ultra-low-cost carriers will disappear. If that happens, consumer prices can be expected to go up, as the pressure placed on full-service carriers to match low-cost airlines’ prices will be present.
Spirit would also potentially disappear from numerous markets, providing the potential for another airline, whether it be Frontier, a full-service carrier, or JetBlue, to enter the market at higher prices without the fear of a low-cost carrier coming for them.
“The proposed acquisition would eliminate Spirit, a disruptive and innovative competitor and reduce consumer choice in hundreds of markets that it serves today or would serve in the future,” the Justice Department argued in court filings.
Connecticut senator Chris Murphy agrees with the Justice Department, arguing during a roundtable discussion that small communities will lose out from a potential merger.
“When these mergers happen, it seems to be that the haves — geographically — have more, and the cities that are smaller and needed the presence of these smaller airlines or smaller companies that get gobbled up by bigger companies lose out,” Murphy said.
Still, JetBlue is making a strong case for its merger. The airline argues that a bigger JetBlue would end up being better for consumers after all.
“We look forward to presenting our case in court as we strongly believe our combination with Spirit is the best opportunity to disrupt the industry by increasing competition and choice, creating a long overdue national low-fare challenger to the dominant Big Four airlines,” JetBlue said in a statement.
A Justice Department filing has found that the top four U.S. airlines account for 80% of the market in the United States. JetBlue has been trying to work its way off of the east coast to have a larger presence across the entire country. Once the airline has access to Spirit’s airplanes and airport slots, the carrier will have a useful tool for them to get that access.
“Organic growth of the sort needed to mount a national challenge to the legacies would take decades,” JetBlue argued in court filings. “JetBlue’s merger with Spirit would turbocharge JetBlue’s growth and create a strong fifth national player in the domestic airline market.”
JetBlue would be able to compete with the major US carriers throughout the entire country, instead of focusing only on connections to and within the East Coast and Caribbean. They would be able to appeal to passengers who wouldn’t fly an ultra-low-cost carrier like Spirit on the West Coast but want an alternative to the higher prices offered by the three full-service airlines.
The last major airline merger in the United States came when Alaska Airlines outbid JetBlue to merge with Virgin America. That merger would have effectively had the same effect on JetBlue that a merger with Spirit could have: it could have opened them up to the West Coast market and helped them grow their network beyond the East.
Plans for a trial come as Spirit is facing a sharp drop in demand that is severely impacting its profits. The carrier recently announced they are halting crew training, given reduced demand and engine issues that have grounded many of its Airbus A320 aircraft.
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